Troubled Debt Restructuring

A troubled debt restructuring (impaired loan) is a debt restructuring in which the creditor allows the debtor certain concessions to improve the likelihood of collection that would not be considered under normal circumstances. Concessions include items such as reduced interest rates, extension of maturity dates, reduction of the face amount of the debt, and reduction of the amount of accrued interest. The concessions must be made in light of the debtor's financial difficulty, and the objective of the creditor must be to maximize recovery of the investment. Troubled debt restructurings are often the result of legal proceedings or of negotiation between the parties. See also impairment of loans.